Why Customer Loyalty Programs Are So Important

Many retailers find themselves in a low-growth world. Millennials, showrooming, and changing technology platforms are disrupting the industry and stalling growth. Cost-cutting is a common strategic response, but retailers should focus on customer loyalty.

Understanding what your customers find valuable is key—and it’s not always what will save them the most money.KPMG

Customer loyalty programs are proven methods for growing and sustaining market share. Consumers who are already enthusiastic about a brand are more likely to continue buying and are a prime market for that brand’s new products.

Still, there is a disconnect. Retail executives recognize the importance of customer loyalty programs, but few are taking action. Many companies, in fact, have merely tinkered with programs that were established years ago when consumer expectations and the competition were much different. They also don’t have an accurate way of measuring how their loyalty programs are even performing.

Old patterns of consumer behavior no longer hold true in the current retail marketplace, and retailers need to adjust to survive. Loyalty programs can still drove market share, but they need to be simple to access, relevant to industry trends, and appealing to today’s digital consumer.

The process isn’t cheap. Investments in loyalty programs can reach as much as 5 percent of sales. So to be worth the money, loyalty programs need to reach the right customers and need to be built with the proper discipline and a strong financial model.

So how do you do that? Let’s start with an action plan to establish four priorities for optimal results:

Start with the customer experience. A good loyalty program will multiply the impact of a good customer experience, but it won’t compensate for a bad one. So companies need an accurate way of measuring the customer experience, which should be the starting point of any loyalty program.

Use the data effectively. What separates a good loyalty program from a great one is the way it uses customer data. And companies need to integrate the data into their entire business operations, not just loyalty programs.

Keep rewards fresh. Loyalty programs have to be consistent, but consumers also like novelty. With the right approach to testing and personalization, a loyalty program can frequently introduce new and different benefits that excite customers at a reasonable cost. At the same time, the right analysis will identify benefits that are not popular or profitable. So sweep out the dead weight while winning attention with new ideas.

Design a business model first. Before you worry about a budget, figure out what program you want and design a business model around it. That will allow more creativity in coming up with funding and loyalty benefits.

Understanding what your customers find valuable is key—and it’s not always what will save them the most money. In a recent KPMG survey, half of the loyalty customers polled said they would do “almost anything” to earn more rewards in at least one program.

The rewards program also has to be flexible. Consumer preferences change, so your loyalty program has to change too. In the KPMG survey, more than 80 percent said they prefer surprise deals or gifts to information on sales, special privileges, time-saving opportunities, or other traditional program benefits. A program that offers frequent surprises will likely see a spike in sales and can be less generous with other benefits.

Companies should also consider a partnership to make a loyalty program more affordable. Co-branded credit cards and working with suppliers to reduce costs for products or funding are just two among many partnership options.